Media and Journalism Course
Business and Economics Reporting
Economic Systems
Let’s understand some terms
Before we look at the basic economic questions, there are some key definitions that
underlie all standard thoughts on economic theory. The key terms are:

Wants, which are simply the desires of the people living in an area. Wants are
different from needs as we will see below. Wants are a means of expressing a
perceived need, but are broader than needs.

Needs, which are the basic requirements for survival like food and water and
shelter. In recent years we have seen a shift of certain items from wants to
needs. For example as many societies grow more sophisticated services such
as telephone connections and internet services are being considered as needs,
whereas in many developing countries food, water and shelter remain true
needs. Economists frequently argue over the definition of needs, especially on
whether there is such a concept of universal needs and

Scarcity - the fundamental economic problem facing ALL societies.
Essentially it is how to satisfy unlimited wants with limited resources. This is the
issue that informs all government decision making and concerns everyone
living in nearly every society in the world today.
Basic Economic Questions
So, now that we understand the definitions, we can discuss what most economists
and commentators agree that are the three basic economic questions:

What goods are produced?

What resources are used to produce the goods?

Who gets to consume the goods?
The way that a country handles these questions is based on their economic system.
An economic system is basically the decision making that is done to answer these
questions. We’ll take a closer now at the world’s main economic systems.
Economic Systems
There are four main types of economic systems present in the world:

the traditional economy

the market economy

the command economy

the mixed economy.
Let’s consider these types of economies.
A traditional economy is an economy that answers the three questions based on
their social customs and how the society has dealt with these questions in the past. A
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Media and Journalism Course
Business and Economics Reporting
country's customs can differ greatly to that of a neighboring country so traditional
economies vary from one to another.
A market economy is the type of economy that operates in most developed countries
today and these questions are answered in the marketplace by the interaction of
buyers and sellers. For example, the question of what to produce may be based on
what trend is popular right now. The producer would create a product that they
think would sell well to the public in hopes to make a profit. The question of how to
produce is usually based on the producer's choice. They might decide to produce a
product with more workers or they might decide to produce it more with
sophisticated manufacturing plants and computers to save on labour costs. The
question involving for whom to produce is based on the buyer who decides what they
want or need and what price they are willing to pay for it.
A market economy is good for motivating workers to work harder because they are
only paid based on what they do. A worker can increase their income or profit by
working harder and this chance to profit motivates them.
A command economy is an economy where these questions are all answered by the
government. Rather than giving individuals the chance to decide what they want or
need, the government decides these questions for the country. This type of economy
is difficult for the individual because it is impossible for the government to know
exactly what is best for each and every citizen.
Also, command economies don't help with their workers' motivation because
everyone is given the same amount of goods and the same standard of living. A hard
working citizen would not be given a chance to benefit from their extra work because
they cannot increase their standard of living any greater than it currently is and they
will make just as much as a person who exerts little or no effort. There are few
command economies left in the world today, as communist and totalitarian
governments which commonly commanded the economy of a country have declined
in number. Cuba and North Korea remain examples of command economies.
A mixed economy is an economic system that answers the three questions both in
the marketplace and in the government. Many countries in the world have mixed
economies – for example, where the government plays a role in the economy, a mixed
economy usually involves producers working closely with the government so
countries such as America are still essentially a market economy, even though there
may be government intervention present.
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